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Silver Price Forecast: XAG/USD holds near $31 as Fed rate cut bets mount

  • Silver price remains firm as US Treasury yields come under pressure due to rising bets on Fed rate cuts.
  • Fading US labor market strength weighs on dollar and bond yields.
  • The US unemployment rate rose to its highest level in more than two years, standing at 4.1%.

Silver (XAG/USD) is trading within Monday’s trading range near $31.00 in Tuesday’s Asian session. The white metal is exhibiting strong strength as a rate cut by the Federal Reserve (Fed) in September seems to be a done deal.

The CME FedWatch tool shows that traders see a 77% chance of rate cuts in September, which is up from 65.6% a week ago. The reason behind the growing speculation about rate cuts is the moderation of US labor market conditions.

The US Nonfarm Payrolls (NFP) report for June showed the unemployment rate rose to 4.1%, the highest level in more than two years. Also, average hourly earnings declined as expected, easing fears that inflation will remain persistent as slower growth in purchasing power would keep a lid on consumer spending.

Rising expectations of Fed rate cuts in September have limited the upside in the US Dollar (USD) and Treasury yields. The US Dollar Index (DXY), which tracks the value of the Greenback against six major currencies, remains on the defensive near a three-week low around 104.85. US 10-year Treasury yields are struggling to hold weekly support at 4.28%. Falling yields on interest-bearing assets reduce the opportunity cost of holding an investment in non-yielding assets such as Silver.

Technical analysis of Silver

Silver price extends its rise near $31.00 after a breakout of the descending channel formation on the four-hour time frame. An upside breakout of the mentioned chart pattern results in a bullish reversal. The upward sloping 20-day exponential moving average (EMA) at $30.70 is showing an uptrend.

The 14-period Relative Strength Index (RSI) is moving into the bullish range of 60.00-80.00, indicating that momentum has shifted to the upside.

Silver four-hour chart

Source: Fx Street

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